Asia’s Exports are Improving — But Not Like the Glory Days

Stronger April export numbers from China are adding to the perception that recovery in the West is finally producing a trade-driven bounce in Asia.

But while the data indicate the sharp weakness early this year has passed, they also suggest Asia is unlikely to return to the heady export-led growth of years past.

Stronger growth in the United States as the year progresses “should translate into a meaningful boost to the region in terms of exports,” Goldman Sachs chief Asia economist Andrew Tilton said. “But compared to the heyday of Chinese export growth before the global financial crisis, it’s highly unlikely we can get back to growth rates around 15-20% annually.”

Thursday’s data showed Chinese exports grew 0.9% on-year in April – versus the 3.5% drop expected — but the figure was weighed down by the rampant use of fake export invoices a year ago designed to move money into the country around Beijing’s strict capital controls. That practice inflated the year-ago comparison.

Capital Economics analyst Julian Evans-Pritchard said China’s April figures are especially impressive if you remove shipments to Hong Kong and Taiwan, the source of most of the overinvoicing a year ago. Excluding those destinations, Chinese exports to the rest of the world rose 10.2% on-year in April, up from 7.8% growth in March, he said.

“All the signs really suggest that exports are quite healthy,” Mr. Evans-Pritchard said. “I think we’ll find out next month what exports really look like, because the distortion should have largely faded in May.”

Not all the signals are flashing green, however. HSBC’s manufacturing purchasing managers index for South Korea, which reflects conditions on the factory floor, showed a slight decline in new export orders. Korea’s exports grew just 2% in the first quarter of 2014, the slowest pace since the middle of last year.

Taiwan’s data also aren’t quite as pretty on closer inspection. The annual comparison for April exports was encouraging, but shipments actually fell 2% from the previous month, according to ING. Taipei’s first-quarter GDP growth of 3% — its best in more than a year — still was a far cry from growth rates above 5% before the global financial crisis.

What seems sure is that Asia’s not returning any time soon to double-digit export growth. There are many theories for this, but a key reason is the nature of the U.S. recovery. While U.S. growth is improving, it’s being driven largely by capital expenditure, not consumer demand for the kinds of goods Asia makes.

“It seems that the sensitivity of U.S. imports of Asian goods and services to U.S. growth is now lower than it was prior to the global financial crisis,” said Romain Duval, an IMF economist specializing in Asia. “That would suggest that a 1% growth jump in the U.S. is going to help Asia less than it did in the past.”

Ultimately, the deepest significance of the April trade numbers may be that fears of a hard landing in China – which would impact the entire region – were overblown. That means Beijing is unlikely to roll out massive stimulus measures of the sort that kept Asian growth humming along while the rest of the world languished during the global financial crisis.

Getting precisely to Chinese authorities’ target of 7.5% economic growth this year “will be a challenge. But getting near that we don’t think will require large-scale stimulus,” Goldman’s Mr. Tilton said. “Some improvement on the export side is critical to getting to the growth target, particularly if there’s not going to be a large amount of stimulus.”

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